Minnesota Non-Compete Agreement Lawyers

If you or a loved one has questions about non-compete agreements, reach out to an employment lawyer. The attorneys at Heimerl & Lammers protects employees’ rights in non-compete agreements. Our employment attorneys will carefully review your situation and discuss your legal options. For more information about how Heimerl & Lammers can help you, get in touch with us for a free consultation by calling (612) 294-2200.

What Is A Non-Compete Agreement?

A non-compete agreement is something that certain employers will require their employees or independent contractors to sign to ensure that the employee will not steal from their clients. A non-compete is essential to protect a company from its employees. Suppose a salesperson is the face of a company. A client may become attached to that person and only desire to work with them, and companies recognize this. As a result, salespeople generally sign non-compete agreements, which means that if they leave the company, they cannot persuade the client to follow them to the new company. However, this does not preclude clients from voluntarily, without external persuasion from the former employee, leaving the company and beginning to utilize the employees’ new company for their product or services.

Although preventing former employees from persuading clients to follow them to new companies is not the only thing that non-compete agreements achieve. Rather, they also seek to protect the company’s confidential and proprietary information that it will provide to its employees and prevent employees from working for a direct competitor of the employer.

Employers draft non-compete agreements. Therefore, they tend to be highly employer-friendly and, in extreme circumstances, have disadvantaged the employee to a severe detriment. As a result, some states have disallowed non-compete agreements. Other states have placed restrictions on what a non-compete agreement contains.

What Restrictions Does Minnesota Place On Non-Compete Agreements?

Generally, the court will only enforce non-compete agreements that are narrowly tailored to protect the employer’s legitimate business interests. Suppose the employer goes beyond the protection of its legitimate business interests. In that case, the court will likely invalidate the non-compete agreement because Minnesota does not want to prohibit its citizens from being able to make a living.

For a non-compete to be found valid, it must have the following:

• Independent consideration
• Be protecting a legitimate business interest
• Be reasonable in scope, duration, and geographic territory

Independent Consideration

Independent considerations generally are payments made and any required payments under an agreement. For example, you have a purchase agreement for a home. It contains independent consideration, such as an additional $100 that is non-refundable at the outset of the deal. This $100 is in addition to the home price. Concerning an independent consideration in a signed non-compete agreement at the beginning of employment, the consideration can be the individual’s salary as it was bargained for and provides a benefit to the employee. However, suppose you sign the non-compete agreement mid-employment, and it does not accompany a raise or bonus. In that case, independent consideration cannot be the continuation of employment or the employee’s existing salary.

Moreover, if only some employees sign a non-compete agreement, the non-signers and the signers cannot receive the same benefit because there was no bargaining. Suppose you are mid-employed, and your employer requests that you sign a non-compete agreement. It states, “…in consideration of a bonus equaling 5 percent of the employer’s salary.” If everyone in the company is receiving a 5 percent bonus, that likely is not independent consideration.

Legitimate Business Interest

As mentioned above, to be enforceable, a non-compete agreement must protect a legitimate business interest. Minnesota courts have recognized three interests as legitimate business interests:

• Protection of the employer’s goodwill (i.e., the good reputation or brand identification the business enjoys)
• Protection of the employer’s confidential information and trade secrets
• Protection of the time and financial investment made to give an employee “specialized training”

Generally, businesses will attempt to use a combination of these interests to ensure their non-compete agreement is enforceable. However, courts regularly see through attempts to enforce an agreement to punish former employees for leaving the company.

Reasonable Scope

While an employer has the right to protect a legitimate business interest, the scope in which that legitimate business interest is protected must be reasonable. For example, the Minnesota Court of Appeals, in Sysdyne Corp v. Rousslang, found that a non-compete agreement that disallowed an employee from taking their pre-existing customers with them was overly broad and unnecessary to protect the business’s legitimate business interests.

Reasonable Duration

In addition to needing a reasonable scope to protect the business’s legitimate business interest, the non-compete agreement will only be enforced for a reasonable length of time for the protection of the company and its goodwill. While there is no specific rule on a reasonable duration of non-compete agreements, courts generally find two years reasonable. However, they will look at the following to fully determine a reasonable duration:

• The length of time necessary for clients to stop associating the former employee with the company
• The length of time necessary for the employer to hire a replacement
• The length of time necessary for that replacement to learn the fundamentals of the role.

Therefore, if your non-compete agreement lasts for ten years after you depart from the company, it will likely be unenforceable because people will generally stop associating you with your former company after a couple of years. Moreover, a year or two is more than sufficient time to reasonably hire a replacement and put them through orientation.

Reasonable Geographic Territory

The non-compete agreement may also have a reasonable geographic territory restriction. The reasonableness of geographic territory is subjective and depends on the business and the position in which the employee holds. A court will find a non-compete agreement unenforceable if it restricts the employee’s geographic territory to a territory where the employee did not work for the employer.

For example, suppose a salesperson worked all of Northern Minnesota but was restricted from working in the same position for two years in all of Minnesota. In that case, the non-compete agreement will be found unenforceable. However, this restriction has become more difficult for courts to determine if it is reasonable or not because e-commerce allows individuals to work all over the world.

Minnesota House Bill HF999

In February 2022, House Judiciary Finance and Civil Law Committee approved a bill Representative Jennifer Schultz sponsored. It could eventually become Minnesota law if it passes the legislature. The bill, if it becomes law, would further limit an employer’s ability to use a non-compete agreement, as it provides “as is” that “a covenant not to compete is void and unenforceable” unless:

• The employee earns an annual salary equal to at least the median family income of a four-person family in Minnesota. (According to the Department of Justice, in 2021, the median income for a family of four in Minnesota was $118,646)
• The employer agrees to pay the employee on a pro-rata basis during the entirety of the restriction period. The pro-rata basis must be based on the employees’ salary in the preceding two years before separation from the company

These are both highly employee-friendly requirements, so if this bill becomes law containing the above requirements, it is likely many employers will stop using non-compete agreements.

MN Employment Lawyers For Non-Compete Agreements

To have an employment relationship at some companies, you are required to sign employment contracts that may contain a non-compete clause. Even if you are not required to sign an employment contract, you might be asked to sign a non-compete contract disallowing you from working for your employer’s competitors upon the termination of your employment. If you are being asked to sign a non-compete or employment agreement, what’s in it for you? Contact the employment lawyers at Heimerl & Lammers, as we can help ensure that you are treated fairly and don’t agree to unreasonable conditions which may cause problems for you in the future.

What Are Common Non-Compete Agreement Provisions?

Non-compete agreements are not one-size-fits-all, but the following provisions are something you will likely see if your employer asks you to sign a non-compete agreement:

• Anti-Solicitation Provision
• Notice to Prospective Employers
• No Conflicts Provision
• Confidentiality Provision
• Defend Trade Secrets Act (DTSA) Provision
• Attorneys’ Fees Provision
• Injunctive Relief Provision
• Survival Provision

Anti-Solicitation Provision

An Anti-Solicitation is one of the primary purposes of having a non-compete agreement and is the provision that creates the restriction on the employee from being able to solicit the employer’s customers. This provision can take the place of a geographic limitation. For example, in Hart Forms & Sys v. Goettsch, the Minnesota Court of Appeals enforced a non-compete agreement that limited the former employee from soliciting twelve customers and three leads.

Notice To Prospective Employers

This provision will generally require the employee to provide a prospective employer with the non-compete agreement or make the employer aware of your obligations under the non-compete agreement if they offer you a position. This provision aims to prevent a competitor from assisting a former employee in breaking their non-compete agreement. While the non-compete agreement does not explicitly apply to the other company, it does help the company make a tortious interference claim against their competitor.

Tortious Interference

A tortious interference claim alleges that someone improperly induced another party to breach a contract with the plaintiff. To be successful under a tortious interference claim, the plaintiff (i.e., former employer) must prove the following:

• A non-compete agreement existed
• The prospective employer knew about the non-compete agreement
• The prospective employer intentionally induced the employee to breach the non-compete agreement
• There is no justification for the prospective employer’s involvement in the breach of the non-compete agreement
• The employer sustained damages

As you can see, to be successful on a tortious interference claim, the prospective employer must have actual knowledge of the non-compete agreement. Therefore, the anti-solicitation provision is essential for employers to get as many damages as possible upon a breach of the non-compete agreement.

No Conflicts Provision

This provision is how the employer ensures that they cannot be liable for a breach of a previous non-compete agreement. In addition, the provision will make the employee agree they are not subject to any other non-compete agreements that their new employment would breach.

Confidentiality Provision

This provision generally provides that the employee cannot disclose any confidential and proprietary information. Furthermore, they must return all confidential and proprietary information to the company upon separation. For example, suppose you are a video game designer and have been working on new software for a game. Even if it was fully your creation, it is likely that under the non-compete agreement, the company will attempt to restrict you from using your own software because it is their proprietary information. Therefore, it is important to closely read this provision to understand what constitutes confidential and proprietary information.

Defend Trade Secrets Act Provision

The Defend Trade Secrets Act (DTSA) is a federal law that allows a trade secret owner to sue a person or entity that steals that trade secret. Let’s say a company paid someone to steal or disclose KFC’s Signature Spice Blend. KFC could sue and recover exemplary damages and attorneys’ fees under the DTSA.

Attorneys’ Fees Provision

Courts do not tend to award attorneys’ fees. Therefore, an employer will insert an attorneys’ fees provision to ensure that an employee bears all of the cost of litigation, if possible. If the non-compete agreement does not contain an attorneys’ fees provision, Minnesota does not allow for the prevailing party to shift their attorney fees to the counterparty.

Injunctive Relief Provision

Employers not only want to get monetary damages if you breach a non-compete agreement. They also want the ability to stop your behavior that constitutes a breach. However, the provision itself will not provide for a preliminary or temporary injunction in Minnesota. Instead, the court looks at the following factors to determine if injunctive relief is appropriate:

• The relationship between the parties before the dispute
• The plaintiff will suffer greater harm if relief is denied compared with the harm inflicted on the defendant if the injunction is issued
• The likelihood that one party or the other will prevail on the merits
• The public interest is involved
• The administrative burdens involved in enforcing the relief requested

Based on the above requirements, it is helpful for courts to award an employer injunctive relief if the employee has agreed to it in the non-compete agreement.

Survival Provision

A non-compete agreement is based on the underlying agreement of employment. Therefore, without a provision providing that the non-compete agreement is still in effect after employment ends, the non-compete agreement would terminate along with the termination of employment. In Minnesota, the courts have found that if the non-compete agreement does not contain a survival provision, the non-compete agreement is not enforceable after the underlying agreement expires.

What Is The Blue Pencil Doctrine?

Minnesota has adopted the blue pencil doctrine. The blue pencil doctrine allows a judge to modify a non-compete agreement to make it enforceable. Suppose the geographic limitation in a non-compete agreement is unreasonable. After applying this doctrine, the court may modify the geographic restriction to make it reasonable and, as a result, enforce the contract with that modification. Then, the judge can find the agreement valid and enforceable. However, in Minnesota, the court will not modify a non-compete agreement that is overly broad or contains vague terms.

Can An Employer Selectively Enforce a Non-Compete Agreement?

If an employer attempts to enforce certain non-compete agreements but ignores other non-compete agreement violations, the court will not look at the employer favorably. Resultingly, the court may find that the entirety of the non-compete agreements are not necessary to protect a legitimate business interest and, therefore result, are invalid.

Employment Attorney In Minnesota

If a company asks you to sign a non-compete agreement, it is essential that you thoroughly read it first. This will ensure that you understand your obligations under the non-compete agreement. The attorneys at Heimerl & Lammers do more than help you understand the non-compete agreement. We will strategically defend you if your former employer sues you for a non-compete agreement breach. At Heimerl & Lammers, we have the knowledge and experience to protect your rights under a non-compete agreement and ensure that an employer does not take advantage of its former employee. Call us at (612) 294-2200 for a free, confidential consultation.